Stress test reveals Bank of America weakness

The results of the “stress test” performed by the Federal Reserve on the nation’s largest banks were released this week showing ten of those banks need significant capital to withstand any losses should the recession worsen. Of those banks, Bank of America and Wells Fargo (formally Wachovia locally) were included on the list. Bank of America needs nearly $34 billion, by far the most of any bank in the country while Wells Fargo needs $13.7 billion.

Winthrop professor of economics, Dr. Gary Stone, says there is some need for concern but no need for panic.

“Concern, yes, to be panicked about it, I wouldn’t think so,” said Stone. “Generally, looking at how the banks are doing with the economy still being shaky, I think there is a lot of concern about the banks but I think Bank of America should be able to come up with the new capital that it needs. I’m aware about this, I’m concerned about it to an extent, but I don’t think people should start racing away from Bank of America.”

Stone says the current quarterly earnings released by Bank of America may encourage investment in the bank. “You’re looking at how a bank holds up in this type of economic situation and for people being buying stock or thinking about selling their stock, they want to know that,” he said.

“What does it look like the future trim will be for this organization at a bank or any other type of enterprise? So, I think with Bank of America, some people could be concerned and say I think I want to get rid of some of this stock, and yet, you may find other people who look at certain signs of strength and say I want to buy now while the stock is still relatively low price. I think the prospects are good for the bank.”